In the dynamic economic landscape of Bangladesh, where technological strides are propelling the nation towards a digital future, the imminent arrival of branchless digital banks emerges as a pivotal contributor. These innovative institutions transcend the conventional financial realm; they stand as pioneers of transformation, poised to reshape how people in Bangladesh access and manage their finances. Their impending introduction signifies a significant role in propelling the digital evolution of the nation, as the traditional banking paradigm evolves to embrace the era of digital inclusivity.
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In a country well-acquainted with Mobile Financial Services (MFS), agent banking, and traditional brick-and-mortar branches, the ascent of branchless digital banks signifies a paradigm shift. Bangladesh is on the brink of redefining the very concept of banking. These digital banks are set to revolutionize how individuals access and engage with financial services, ultimately shaping the financial horizon of the nation.
BANGLADESH BANK’S CIRCULAR SIGNALS A PARADIGM SHIFT IN BANKING
On June 15, 2023, Bangladesh Bank (BB) has issued a circular, signaling the dawn of Digital Banking in Bangladesh. Recognizing the transformative impact of digital innovation on the global financial landscape, BB underscores the crucial role of digital platforms and Artificial Intelligence (AI) in fortifying and securing the financial system.
BB has also outlined its intent to grant licenses for digital banking systems, as mandated by section 31 of the Bank Company Act 1991, requiring the establishment to be a public limited company with an initial minimum paid-up capital of BDT 125.00 crore contributed by sponsors, each holding a minimum stake of BDT 50.00 lac.
In essence, digital banking is a departure from traditional methods, eliminating the need for paperwork such as cheques, pay-inslips, and demand drafts. It signifies the comprehensive availability of banking services through online platforms. The transition from traditional to digital banking is a gradual evolution marked by high levels of process automation and web-based services. This paradigm shift enables customers to access financial data seamlessly through desktops, mobile devices, ATMs, and other electronic gadgets with internet connectivity.
The roots of digital banking can be traced back to the 1960s when banks initiated computer usage to automate certain functions like account management and check processing. The subsequent decades witnessed milestones such as the introduction of the first ATM by Bank of America in the 1960s and Citi Bank pioneering online banking in the 1980s. The surge in internet usage during the 1990s to 2000s led to the development of online banking portals, gaining popularity for its convenience. The proliferation of smartphones in the late 2000s and early 2010s prompted banks to offer mobile apps, setting the stage for the widespread adoption of digital banking. Now, with technological advancements such as AI, the future of digital banking is poised for a substantial positive impact.
Digital banking bestows customers with unparalleled flexibility, enabling account operation 24/7, regardless of location, weather, or mode. The convenience is underscored by the elimination of the need for pre-planned visits to traditional banks. Online shopping and payments become seamless, reducing the reliance on physical currency and fostering a cashless society, thereby curbing the circulation of unaccounted wealth.
DIGITAL BANKS ARE CATALYZING ECONOMIC GROWTH
Across the globe, countries have harnessed the power of branchless digital banking to redefine financial inclusion. Inspirations abound in the success stories of Kenya’s M-Pesa and India’s Paytm Payments Bank. With an increasingly connected population through the internet, social media, and mobile devices, the convenience and accessibility of digital banking align perfectly with the government’s Digital Bangladesh vision. These digital banks are not just catalysts for change; they are bridges, closing the gap between urban and rural areas and ensuring that all citizens can effortlessly avail themselves of financial services.
Freed from the constraints of physical branches, these banks can redirect resources to offer more competitive interest rates and services, buoyed by the insights gleaned from data analytics. The tailoring of financial products enhances customer satisfaction and loyalty, thereby acting as a catalyst for economic growth.
The environmentally conscious ethos of branchless digital banks is a noteworthy aspect. By operating in the digital realm, these institutions reduce reliance on paper transactions, contributing to a diminished carbon footprint. This resonates with global trends favoring sustainable banking practices and aligns with a populace increasingly attuned to environmental concerns.
MICRO-LOANS, AGRICULTURE FINANCING, AND SMALL BUSINESSES TO THRIVE
A beacon of hope for rural communities, branchless digital banks offer easy access to financial services, enabling support for micro-loans, agricultural financing, and small businesses. This empowerment at the grassroots level becomes a driving force for economic growth, contributing significantly to poverty reduction and rural development.
The advent of digital banks plays a pivotal role in enhancing digital literacy, particularly among the youth. As the younger generation engages with these platforms, they cultivate familiarity with digital transactions, payments, and financial management. This, in turn, nurtures a tech-savvy population, well-prepared for the demands of a digital economy.
Ensuring that the general population can readily absorb new digital banking tools without apprehension is paramount. This need was underscored by the recent scam perpetrated by the Dubai-based investment platform MTFE, which targeted citizens of Bangladesh, Nigeria, and Sri Lanka, convincing them to invest in supposedly “Shariahcompliant” cryptocurrencies and other financial instruments. The scam resulted in significant losses for hundreds of thousands of customers, emphasizing the importance of financial literacy programs before granting access to vulnerable communities.
CATALYSTS FOR GRASSROOTS ECONOMIC GROWTH
Digital banks possess the transformative ability to extend services to customers at minimal cost, thanks to their operational efficiency and the absence of physical branches, eliminating unnecessary expenses. With robust unit economics, digital banks can offer collateral-free loans at single-digit interest rates, addressing a critical need in an economy where a significant portion operates informally.
Approximately half of the economy exists in the informal sector, and only digital banks, with their cost-effective approach, can realistically bring loan interest rates to acceptable levels. The goal is to remove obstacles to banking and make financial services easily accessible at one’s fingertips, aligning with the government’s broader financial inclusion agenda.
The launch of digital banks in Bangladesh thus holds the promise of reaching grassroots individuals, including poultry vendors and vegetable growers in remote villages. This move ensures that farmers no longer have to resort to loan sharks for tools, machinery, or personal emergencies, marking a significant step towards financial empowerment at the grassroots level.
A SNAPSHOT OF DIGITAL BANKING TRIUMPHS
China stands as a testament to the cashless revolution, with a significant portion of transactions conducted through mobile phones and e-payment platforms such as WeChat Pay and Alipay. WeBank, earning the accolade of “Best Global Digital Bank” in 2023 from the Asian Banker, commenced its operations in December 2014. Across the globe, NuBank in Brazil boasts the highest valuation among digital banks, while Chime claims the title of the largest digital bank in the USA, boasting over 13.1 million users. In India, as of October 17, 2022, 75 operational digital banking units span across 75 districts, with at least one unit in each of the 29 states.
In contrast, Bangladesh is yet to witness the advent of a digital bank. However, the landscape is evolving as 52 entities, a mix of domestic and foreign players, have sought the central bank’s approval to establish digital banks. Leading this charge is the collaborative effort of ten private banks, forming the consortium ‘DiGi10’ (Digital Bank PLC). The contributing banks, including Trust Bank, City Bank, Mutual Trust Bank, and others, aim to pioneer the digital banking frontier. Meanwhile, four state-owned banks – Sonali, Agrani, Janata, and Rupali – have expressed their intent to establish another digital bank. Adding to the mix, state-run MFS providers like Nagad, brash, telecom company Banglalink, and digital services company Pathao have also submitted applications to venture into the digital banking realm.
UNTAPPED POTENTIAL
Data from DataReportal reveals that, among the country’s approximately 170 million people, there were 66.94 million internet users in January 2023, with an internet penetration rate of just 38.9 percent. Smartphone penetration, as of 2022, stood at only 47 percent. However, with Bangladesh ranking as the fastest-growing economy in the Asia-Pacific region and all frontier markets, there is immense growth potential.
